The Clean Industrial Revolution

, held at the Red Sea Gallery in Fortitude Valley. It’s rare to find a book I agree with so thoroughly. Ben gets the economic balance just right: stabilising the global climate means a lot more than turning off light bulbs and having shorter showers, but it doesn’t mean we can’t have steadily increasing prosperity in poor countries as well as those that are already rich. But, ignoring the way the world is going, and trying to hang on to a coal-based economy will mean missing out on those opportunities, unless we can find a way to turn the rhetoric of clean coal (that is, carbon capture and sequestration into a reality). Like me, Ben is agnostic on the prospects for CCS, and concerned that it seems to used more as a basis for wishful thinking about avoiding change than about a serious commitment to develop and implement a workable solution if one can be found. Finally, the book gets it right on the role of markets: without markets and a proper price for carbon nothing will be achieved, but we need to do a lot more than set a price and leave the market to work. If you only buy one book on climate change, this should be it.

What Tom said. Unless JQ is an even more gloomy character than I thought.

Beyond setting a price for carbon and letting the market get on with things what else does JQ think we need to do? I assume his general desire for the nationalisation of the banks and increases in the financial cost of being governed (ie higher taxes) are separate to his idealised climate change response.

As you said, Terje, I don’t need or use climate change to justify large-scale government intervention. But, I think there are a lot of institutional and social changes that are needed in the transition to a low-carbon economy and government policy can help with some of those. More details soon.

I can really only comment on the few paragraphs in the link provided but a couple of points strike a nerve. Firstly I think Australia has gone from being a world leader in cleantech to a follower. Some promising ideas had to go offshore to be developed. Rudd’s cave-in on the ETS just seemed to set the seal on it. Secondly both McNeil and Stern believe that ‘prosperity’ can grow. I think we may have to alter the definition to accommodate that belief. So instead of GDP per capita we might have to aim for less car ownership but shorter hospital waiting times, more like the Cuban model. I’ll try to get the whole book or excerpts.

Hermit, I think the whole point of the argument is that we can have increasing material wealth, and increasing GDP P/C even while taking action to reduce greenhouse gas emissions. There is no need to change definitions of prosperity because of climate change(if there is the need it is for reasons other than climate change). I think anyone spruiking the Cuban model is likely to be counterproductive, as they will just scare people.

We don’t need to refer to the Cuban model. Health care is already a larger share of GDP (or better, net national income) than motor vehicles and health care improvements make up a big part of projected future growth in GDP.

Is there any mainstream economic theory that claims that the market can produce an outcome that happens to prevent climate change, or is the problem generally believed to be an insoluable market failure requiring some form of artificial government intervention?

without markets and a proper price for carbon nothing will be achieved,

This statement, as it stands, implies that a carbon taxing scheme alone could do nothing to mitigate carbon emissions. Which is wrong.

A carbon tax for sure does not give a “proper price for carbon”. Carbon tax is a blunt instrument designed to punish carbon makers and users, incidence is arbitrary depending on demand elasticities. But that is probably a feature, not a bug, in the current political climate.

If scientists are right that the fate of the planet is at stake then blunt instruments are the way to go since there is no time to lose. That at least was my father’s view of Stalin in WWII. If you are serious about victory then “Koba the Dread” is your man. (Give the Devil his due.)

The carbon trading scheme has been trumpeted for a decade or more by economists as the self-regulating market based solution to excessive carbon emissions. But so far it just looks like a gigantic rort to me. Perhaps I am missing something.

Its fine and right to say that “we need to do a lot more than set a price and leave the market to work”. But the policy pre-eminence of institutional processes over instrumental products means that so-called Green Machines will just turn out to be high-priced status symbols for the SWPL brigade. eg Prius.

IN any case only a carbon tax will generate the revenue needed to pay for Green Machine industrial revolution. Carbon trading permits will be given away to lobbied-up industry insiders.

Just now the Economist, hardly a centre of neo-liberal heresy, has come out against the US’s market-based carbon trading scheme, on grounds that it will be weak, rorted and ineffective:

The weakening of this bill illustrates one of the central problems with cap-and-trade systems. They are complex, obscure and therefore susceptible to horse-trading. A chunk of allowances can be handed out to one lobby, a sliver to another, and soon the system’s effectiveness has been sliced away.

The corresponding attraction of a carbon tax, which this newspaper has always supported, is its simplicity. The government sets the rate. Everybody can see what it is. Voters get transparency. Businesses get certainty. And the government gets a large chunk of revenue—not to be sniffed at in these difficult times.

ETS is post-modern liberalism for you in a nut-shell: all show and no go.

I therefore predict a carbon tax will be required to do the heavy lifting on curbing carbon emissions. The carbon rading scheme will possibly be maintained as a kind of Potemkin village to impress visiting Davos Man and give liberal economists another model to play with.

While a blunter instrument than an ETS might be needed I’m not sure that carbon tax is it. The same groups who lobbied ferociously for giveaways in the ETS will demand giveaways in a carbon tax. No doubt certain senators will go in to bat for them or question the need for any carbon cuts. The point about any compulsory carbon charging is that it creates a major funding mechanism for technology switching. In that sense it has role akin to compulsory superannuation.

I wonder if McNeil will make chapters of his book downloadable in pdf format. I see no easy way that heavy industry like aluminium smelting could survive on wind and solar energy. I’m intrigued to see how such questions are answered.

Is there any mainstream economic theory that claims that the market can produce an outcome that happens to prevent climate change…Yes, at least two of them: the Austrian and Chicago schools. They’re both quite wrong, but they’re definitely mainstream.

…or is the problem generally believed to be an insoluable market failure requiring some form of artificial government intervention?

Well now, this is nonsense unless one is already a captive of the Austrian or Chicago ideas. There’s nothing insolvable about a market failure, and government intervention isn’t artificial.

I have read Ben’s book, and to be honest, I find it boring. There isn’t really anything new in it, and even the ‘Australian perspective’ is just testament to our ‘not-invented-here-syndrome’ (e.g., the Garnaut Review, which is a copy of the IPCC report, with a few added paragraphs on Australia).

Australia is lagging behind 15 years in terms of sustainability and environmental legislation. The call for Australia to be a ‘leader’ is nothing but wishful and ignorant thinking. Why do we need to reinvent the wheel in Australia, when the EU has shown time after time how to do it properly?

If I may recommend a book, which also goes beyond the (at times limited) view of economists, it would be Gunderson’s & Holling’s Panarchy. An excellent read, and definitely worth the money.

It is a little difficult to comment on the book until it is read but your comment that “the book gets it right on the role of markets: without markets and a proper price for carbon nothing will be achieved but we need to do a lot more than set a price and leave the market to work” can be addressed.

Markets are necessary for efficiency reasons but it is investment in clean technologies that is important. I agree wholeheartedly that pricing carbon on its own is unlikely to increase investment by the amount needed.

We can get investment in various ways. If we price carbon then the money collected from the sale of carbon can be directed at investments to reduce ghg concentrations.

The experience curve effect – particularly for photo voltaics – is likely to be at the high end of 25%. Even at 15% it will not take long before the cost of energy from renewables will be much less than the cost from burning fossil fuels – if we invest enough. This puts a lie to the idea that reducing ghg concentrations will reduce our wealth.

We must get enough investment quickly enough before the changes caused by the increased levels of ghg – which are also exponential in effect – take hold and cannot be stopped.

Nicholas the policy outcomes are simple. We must reduce ghg concentrations. To do this we have to invest $25 billion dollars per year for the next ten years in ways to reduce ghg concentrations.

I believe we should be aiming at negative emissions (that is taking the stuff out of the atmosphere) within ten years so the policy outcomes should be $50 billion per year of investments.

The policy should be to trial as many mechanisms as we can devise to encourage investment and not just rely on trading emissions permits or on increasing the price of carbon or on someone else to solve the problem. The policy should include measuring the outcomes of these different mechanisms and encouraging the ones that give the greatest reductions for the least cost.

I agree with Prof Q’s positive review of McNeil’s ‘The Clean Industrial Revolution’. I’m just a third of the way througg it, but it make eminent sense. It leaves me frustrated that our political leaders and the army of economic commentators in the media are not solidly behind analysing and discussing this book’s vision for forward-looking innovative economic future, rather than being stuck in the rent seeking behaviour of heavy polluters and the backward looking (as Guy Pearce would call it) ‘Quarry Vision’ for Australia they and our State and Federal Governments seems to be stuck in. The scale of ineptitude and failure of leadership that missing the significance of this major new economic driver that transitioning to a low carbon economy will inevitably be represents, staggers me.